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U.S. House Prices Are Exponentially Outpacing Income

Navi Persaud
Oct 28, 2021
Digital photo of homes with price tags on them. Credit: iStockphoto.com/NuthawutSomsuk

With U.S. house prices hitting record highs this year, it's clear that it is becoming harder for prospective homebuyers to afford a home, especially if prices are rising faster than income.

KEY TAKEAWAYS
  • Americans need an average income of $144,192 to afford a home, however the median household income which is actually $69,178.
  • Close to 90% of major metros have a house-price-to-income ratio that exceeds the maximum recommended ratio of 2.6.

A new report published by Real Estate Witch reported that income is failing to keep up with the pace of rising house prices in the United States. According to the report, from 2019 to 2021, the average house-price-to-income ratio increased from 4.7 to 5.4 — a 14.9% increase that’s more than double the recommended ratio of 2.6. Essentially what this means is homes cost 5.4x what the average person earns in one year.

So, what does this mean for current homeowners? Well, according to the report inflated home values mean that fewer Americans are underwater on mortgages, however, author Michelle Delgado states that these same homeowners could be poised for disaster in the next housing crash. These homes could be worth less than the principal on the mortgages. 

“The current average house-price-to-income ratio means it takes prospective home buyers 5.4 years to save enough to purchase a home,” said Delgado. “These exorbitant home prices also mean monthly mortgage payments place a major financial strain on homeowners, even if they manage to save enough to purchase a home.”

Since 2017, median family income decreased in New Orleans, Houston, and Oklahoma City. Overall, the report revealed that home prices increased by 2.8x faster than income on average. 

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